Showing papers on "Stock (geology) published in 2003"
TL;DR: In this article, the authors investigated whether marketwide liquidity is a state variable important for asset pricing and found that expected stock returns are related cross-sectionally to the sensitivities of returns to fluctuations in aggregate liquidity.
Abstract: This study investigates whether marketwide liquidity is a state variable important for asset pricing. We find that expected stock returns are related cross-sectionally to the sensitivities of returns to fluctuations in aggregate liquidity. Our monthly liquidity measure, an average of individual-stock measures estimated with daily data, relies on the principle that order flow induces greater return reversals when liquidity is lower. From 1966 through 1999, the average return on stocks with high sensitivities to liquidity exceeds that for stocks with low sensitivities by 7.5 percent annually, adjusted for exposures to the market return as well as size, value, and momentum factors. Furthermore, a liquidity risk factor accounts for half of the profits to a momentum strategy over the same 34-year period.
4,048 citations
TL;DR: The idea of a "random walk" was first proposed by Fama as discussed by the authors, who argued that if the flow of information is unimpeded and information is immediately ree ected in stock prices, then tomorrow's price change will re- ect only tomorrow's news and will be independent of the price changes today.
Abstract: Ageneration ago, the efe cient market hypothesis was widely accepted by academic e nancial economists; for example, see Eugene Fama’ s (1970) ine uential survey article, “ Efe cient Capital Markets.” It was generally believed that securities markets were extremely efe cient in ree ecting information about individual stocks and about the stock market as a whole. The accepted view was that when information arises, the news spreads very quickly and is incorporated into the prices of securities without delay. Thus, neither technical analysis, which is the study of past stock prices in an attempt to predict future prices, nor even fundamental analysis, which is the analysis of e nancial information such as company earnings and asset values to help investors select “ undervalued” stocks, would enable an investor to achieve returns greater than those that could be obtained by holding a randomly selected portfolio of individual stocks, at least not with comparable risk. The efe cient market hypothesis is associated with the idea of a “ random walk,” which is a term loosely used in the e nance literature to characterize a price series where all subsequent price changes represent random departures from previous prices. The logic of the random walk idea is that if the e ow of information is unimpeded and information is immediately ree ected in stock prices, then tomorrow’ s price change will ree ect only tomorrow’ s news and will be independent of the price changes today. But news is by dee nition unpredictable, and, thus, resulting price changes must be unpredictable and random. As a result, prices fully ree ect all known information, and even uninformed investors buying a diversie ed portfolio at the tableau of prices given by the market will obtain a rate of return as generous as that achieved by the experts.
1,948 citations
TL;DR: This article examined the relationship between morning sunshine in the city of a country's leading stock exchange and daily market index returns across 26 countries from 1982 to 1997 and found that sunny weather is associated with upbeat mood.
Abstract: Psychological evidence and casual intuition predict that sunny weather is associated with upbeat mood. This paper examines the relationship between morning sunshine in the city of a country's leading stock exchange and daily market index returns across 26 countries from 1982 to 1997. Sunshine is strongly significantly correlated with stock returns. After controlling for sunshine, rain and snow are unrelated to returns. Substantial use of weather-based strategies was optimal for a trader with very low transactions costs. However, because these strategies involve frequent trades, fairly modest costs eliminate the gains. These findings are difficult to reconcile with fully rational price setting.
1,139 citations
TL;DR: This article examined how investor sentiment affects the cross-section of stock returns and found that when sentiment is low, subsequent returns are relatively high on smaller stocks, high volatility stocks, unprofitable stocks, non-dividend-paying stocks, extreme-growth stocks, and distressed stocks, consistent with an initial underpricing of these stocks.
Abstract: We examine how investor sentiment affects the cross-section of stock returns. Theory predicts that a broad wave of sentiment will disproportionately affect stocks whose valuations are highly subjective and are difficult to arbitrage. We test this prediction by studying how the cross-section of subsequent stock returns varies with proxies for beginning-of-period investor sentiment. When sentiment is low, subsequent returns are relatively high on smaller stocks, high volatility stocks, unprofitable stocks, non-dividend-paying stocks, extreme-growth stocks, and distressed stocks, consistent with an initial underpricing of these stocks. When sentiment is high, on the other hand, these patterns attenuate or fully reverse. The results are consistent with theoretical predictions and are unlikely to reflect an alternative explanation based on compensation for systematic risks.
964 citations
TL;DR: In this paper, the authors take a new look at the predictability of stock market returns with risk measures and find a signi cant positive relation between average stock variance (largely idiosyncratic) and the return on the market.
Abstract: This paper takes a new look at the predictability of stock market returns with risk measures. We ¢nd a signi¢cant positive relation between average stock variance (largely idiosyncratic) and the return on the market. In contrast, the variance of the market has no forecasting power for the market return. These relations persist after we control for macroeconomic variables known to forecast the stock market. The evidence is consistent with models of timevarying risk premia based on background risk and investor heterogeneity. Alternatively, our ¢ndings can be justi¢ed by the option value of equity in the capital structure of the ¢rms. MOSTASSET PRICING MODELS, starting with Merton’s (1973) ICAPM, suggest a positive relation between risk and return for the aggregate stock market. There is a long empirical literature that has tried to establish the existence of such a tradeoi between risk and return for stock market indices. 1 Unfortunately, the results have been inconclusive. Often the relation between risk and return has been found insigni¢cant, and sometimes even negative. The innovation in this paper is to look at average stock risk in addition to market risk.We measure average stock risk in each month similarly to Campbell et al. (2001; hereafter CLMX), as the cross-sectional average of the variances of all the stocks traded in that month.We then run predictive regressions of market returns on this variance measure as well as the variance of the market. Consistent with some previous studies, we ¢nd that market variance has no forecasting power for the market return. However, we do ¢nd a signi¢cant positive relation between average stock variance and the return on the market.
861 citations
TL;DR: This paper used a simple model to outline the conditions under which corporate investment will be sensitive to non-fundamental al movements in stock prices and found that firms that rank in the top quintile of the KZ index have investment that is almost three times as sensitive to stock prices as firms in the bottom quintile.
Abstract: We use a simple model to outline the conditions under which corporate investment will be sensitive to non-fundament al movements in stock prices. The key cross-sectional prediction of the model is that stock prices will have a stronger impact on the investment of firms that are “equity dependent” – firms that need external equity to finance their marginal investments. Using an index of equity dependence based on the work of Kaplan and Zingales (1997), we find strong support for this prediction. In particular, firms that rank in the top quintile of the KZ index have investment that is almost three times as sensitive to stock prices as firms in the bottom quintile. We also verify several other predictions of the model.
774 citations
TL;DR: The authors examine the effect of securities laws on stock market development in 49 countries and find almost no evidence that public enforcement benefits stock markets, and strong evidence that laws facilitating private enforcement through disclosure and liability rules benefit stock markets.
Abstract: We examine the effect of securities laws on stock market development in 49 countries. We find almost no evidence that public enforcement benefits stock markets, and strong evidence that laws facilitating private enforcement through disclosure and liability rules benefit stock markets.
758 citations
TL;DR: In this article, the authors examine the relation between managers' disclosure activities and their stock price-based incentives and find that firms' disclosures, measured both by management earnings forecast frequency and analysts' subjective ratings of disclosure practice, are positively related to the proportion of CEO compensation affected by stock price and the value of shares held by the CEO.
613 citations
TL;DR: In this paper, the authors show that firms and industries with lower market model R 2 statistics exhibit higher association between current returns and future earnings, indicating more information about future earnings in current stock returns.
Abstract: Roll [1988] observes low R 2 statistics for common asset pricing models due to vigorous firm-specific return variation not associated with public information. He concludes that this implies “either private information or else occasional frenzy unrelated to concrete information” [p. 56]. We show that firms and industries with lower market model R 2 statistics exhibit higher association between current returns and future earnings, indicating more information about future earnings in current stock returns. This supports Roll’s first interpretation: higher firm-specific return variation as a fraction of total variation signals more information-laden stock prices and, therefore, more efficient stock markets.
611 citations
TL;DR: In this paper, the authors use returns-earnings regressions as a proxy for investor perceptions of earnings quality and audit quality and find that the influence of past earnings on one-year-ahead earnings forecasts becomes larger as tenure increases.
Abstract: We analyze how investors and information intermediaries perceive auditor tenure. Using earnings response coefficients from returns-earnings regressions as a proxy for investor perceptions of earnings quality, we document a positive association between investor perceptions of earnings quality and tenure. Further, we find that the influence of reported earnings on stock rankings becomes larger with extended tenure, although the association between debt ratings and reported earnings does not vary with tenure. Finally, we find that the influence of past earnings on one-year-ahead earnings forecasts becomes larger as tenure increases. In general, our results are consistent with the hypothesis that investors and information intermediaries perceive auditor tenure as improving audit quality. One implication of our study is that imposing mandatory limits on the duration of the auditor-client relationship might impose unintended costs on capital market participants.
573 citations
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TL;DR: The difference in returns through the political cycle is therefore a puzzle as mentioned in this paper, which is not explained by business-cycle variables related to expected returns, and is not concentrated around election dates.
Abstract: The excess return in the stock market is higher under Democratic than Republican presidencies: 9 percent for the value-weighted and 16 percent for the equal-weighted portfolio. The difference comes from higher real stock returns and lower real interest rates, is statistically significant, and is robust in subsamples. The difference in returns is not explained by business-cycle variables related to expected returns, and is not concentrated around election dates. There is no difference in the riskiness of the stock market across presidencies that could justify a risk premium. The difference in returns through the political cycle is therefore a puzzle.
TL;DR: In this paper, the authors offer an extensive summary and a critical discussion of the empirical literature on the impact of human capital on macroeconomic performance, with a particular focus on UK policy.
Abstract: We offer an extensive summary and a critical discussion of the empirical literature on the impact of human capital on macro-economic performance, with a particular focus on UK policy. We also highlight methodological issues and make recommendations for future research priorities.
Taking the studies as a whole, the evidence that human capital increases productivity is compelling, though still largely divided on whether the stock of education affects the long-run level or growth rate of GDP. A one-year increase in average education is found to raise the level of output per capita by between three and six percent according to augmented neo-classical specifications, while leading to an over one percentage point faster growth according to estimates from the new-growth theories. Still, over the short-run planning horizon (four years) the empirical estimates of the change in GDP are of similar orders of magnitude in the two approaches. The impact of increases at different levels of education appear to depend on the level of a country's development, with tertiary education being the most important for growth in OECD countries. Education is found to yield additional indirect benefits to growth. More preliminary evidence seems to indicate that type, quality and efficiency of education matter for growth too.
TL;DR: In this article, the authors studied the daily and intradaily cross-sectional relation between stock returns and the trading of institutional and individual investors in Nasdaq 100 securities and found that the top performing decile of securities is 23.9% more likely to be bought in net by institutions and sold by individuals than those in the bottom performance decile.
Abstract: We study the daily and intradaily cross-sectional relation between stock returns and the trading of institutional and individual investors in Nasdaq 100 securities. Based on the previous day’s stock return, the top performing decile of securities is 23.9% more likely to be bought in net by institutions (and sold by individuals) than those in the bottom performance decile. Strong contemporaneous daily patterns can largely be explained by net institutional (individual) trading positively (negatively) following past intradaily excess stock returns (or the news associated therein). In comparison, evidence of return predictability and price pressure are economically small.
TL;DR: The authors investigate whether corporate executives' stock repurchase decisions are affected by their incentives to manage diluted earning per share (EPS) and find that executives increase the level of their firms' stock buybacks when: (1) the dilutive effect of outstanding employee stock options (ESOs) on diluted EPS increases, and (2) earnings are below the level required to achieve the desired rate of EPS growth.
TL;DR: In this article, the authors used performance-evaluation methodology to estimate the returns of insiders when they trade their company's stock, and found that insider purchases earn abnormal returns of more than 6% per year, and insider sales do not earn significant abnormal returns.
Abstract: This paper uses performance-evaluation methodology to estimate the returns earned by insiders when they trade their company's stock. Our methods are designed to estimate the returns earned by insiders themselves and thereby differ from the previous insider-trading literature, which focuses on the informativeness of insider trades for other investors. We find that insider purchases earn abnormal returns of more than 6% per year, and insider sales do not earn significant abnormal returns. We compute that the expected costs of insider trading to noninsiders are about 10 cents for a $10,000 transaction.
TL;DR: The authors examined the contribution of cross-listings to price discovery for a sample of Canadian stocks listed on both the Toronto Stock Exchange (TSE) and a U.S. exchange.
Abstract: We examine the contribution of cross-listings to price discovery for a sample of Canadian stocks listed on both the Toronto Stock Exchange (TSE) and a U.S. exchange. We ¢nd that priceson the TSE and U.S. exchange are cointegrated and mutually adjusting. The U.S. share of price discovery ranges from 0.2 percent to 98.2 percent, with an average of 38.1 percent. The U.S. share is directly related to the U.S. share of trading and to the ratio of proportions of informative tradeson the U.S. exchange and the TSE, and inversely related to the ratio of bid-ask spreads. WITH THE ENHANCED GLOBALIZATION of ¢nancial markets, the number of non-U.S. ¢rms cross-listing shares on a U.S. exchange has substantially increased. Attracting non-U.S. listings is now a top priority of the U.S. stock exchanges. At the end of 2000, 420 non-U.S. ¢rmswere listed on the New York Stock Exchange (NYSE).The number of foreign ¢rmslisted on Nasdaq waseven higher.The popularity of international cross-listings has prompted many academic studies on the topic. 1 Most of these studies focus on the bene¢ts of international cross-listings, including the reduced cost of capital and the enhanced liquidity of a ¢rm’s stock. Studiessuch asAlexander, Eun, and Janakiramanan (1987, 1988) and Foerster and Karolyi (1993) suggest that the cost of capital declines because the portion of the risk premium that compensates for cross-border investment barriers dissipates. Miller (1999) and Foerster and Karolyi (1999) propose increased investor recognition as another possible explanation. Several studies examine changes in trading volume and costs due to international cross-listing. Foerster and Karolyi (1998) ¢nd that the bid-ask spreads in Canada decrease after the cross-listing of Canadian stocks in the United States. Domowitz, Glen, and Madhavan (1998) suggest that the impact of cross-listing is complex and depends on the degree of quote transparency, that is, the extent to which price information is observable in the two markets. Smith and So¢anos (1997) examine if cross-listing is a zerosum game, with increased trading in the United States being oiset by reduced
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TL;DR: In this paper, the authors examined the information embedded in both the stock and option markets prior to takeover announcements and found that call volume imbalances are strongly positively related to next-day stock returns, and that those takeover targets with the largest pre-announcement call-imbalance increases experience the highest announcement-day returns.
Abstract: This paper examines the information embedded in both the stock and option markets prior to takeover announcements. During normal periods, buyer-seller initiated stock volume imbalances are significant predictors of next-day stock returns and option volume imbalances are uninformative. However, prior to takeover announcements, call volume imbalances are strongly positively related to next-day stock returns. Cross-sectional analysis shows that those takeover targets with the largest pre-announcement call-imbalance increases experience the highest announcement-day returns. The largest increase in buyer-initiated trading activity is in short-term out-of-the-money calls that subsequently experience the largest returns. Collectively, these findings are consistent with the hypothesis that, in the presence of pending extreme informational events, the options market plays an important role in price discovery.
01 Jan 2003
TL;DR: In this paper, a simple analytical model incorporating benefits of a stock, costs of adjusting the stock, and uncertainty in costs was used to uncover several important principles governing the choice of price-based policies relative to quantitybased policies for controlling stock externalities.
TL;DR: This article conducted an empirical analysis of the relationship between presidential elections and the stock market, and found that the average excess return of the valueweighted CRSP index over the three-month Treasury bill rate has been about 2 percent under Republican and 11 percent under Democratic presidents with an average diierence of 9 percent per year.
Abstract: The excess return in the stock market is higher under Democratic than Republican presidencies: 9 percent for the value-weighted and 16 percent for the equal-weighted portfolio. The diierence comes from higher real stock returns and lower real interest rates, is statistically signi¢cant, and is robust in subsamples. The diierence in returns is not explained by business-cycle variables related to expected returns, and is not concentrated around election dates. There is no diierence in the riskiness of the stock market across presidencies that could justify a risk premium. The diierence in returns through the political cycle is therefore a puzzle. IN THE RUN-UP TOALL PRESIDENTIAL ELECTIONS, the popular press is awash with reports about whether Republicans or Democrats are better for the stock market. Unfortunately, the popular interest has not been matched by academic research. This paper ¢lls that gap by conducting a careful empirical analysis of the relation between presidential elections and the stock market. Using data since 1927, we ¢nd that the average excess return of the valueweighted CRSP index over the three-month Treasury bill rate has been about 2 percent under Republican and 11 percent under Democratic presidentsFa striking diierence of 9 percent per year! This diierence is economically and statistically signi¢cant. A decomposition of excess returns reveals that the diierence is due to real market returns being higher under Democrats by more than 5 percent, as well as to real interest rates being almost 4 percent lower under Democrats. The results are even more impressive for the equal-weighted portfolio, where the diierence in excess returns between Republicans and Democrats reaches 16 percent. Moreover, we observe an absolute monotonicity in the diierence between size-decile portfolios under the two political regimes: From 7 percent for the largest ¢rms to about 22 percent for the smallest ¢rms.
TL;DR: In this article, the authors examined whether there is a linkage between audit quality and pricing of discretionary accruals and found that the association between stock returns and discretionary investments is greater for firms audited by Big 6 auditors than for firms audit by non-Big 6 audrators.
Abstract: Accrual‐based earnings is considered superior to cash flows Accruals allow managers to communicate their private and inside information and thereby improve the ability of earnings to reflect underlying economic value However, managers could engage in aggressive reporting of accruals that would seriously undermine the informativeness of reported earnings Since outsiders cannot directly observe earnings, high‐accrual firms face greater agency costs relative to low‐accrual firms Auditing plays an important role in mitigating these agency costs by constraining opportunistic management of accruals This study examines whether there is a linkage between audit quality and pricing of discretionary accruals The findings indicate that the association between stock returns and discretionary accruals is greater for firms audited by Big 6 auditors than for firms audited by non‐Big 6 auditors Further, discretionary accruals of clients of Big 6 auditors have a greater association with future profitability than dis
TL;DR: In this paper, the authors investigated the dynamic structure of nine major stock markets using an error correction model and directed acyclic graphs (DAG) to provide a structure of causality among these markets in contemporaneous time.
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TL;DR: In this paper, the authors decompose the cross-sectional variance of firms book-to-market ratios using both a long U.S. panel and a shorter international panel, and show that the expected return on value-minus-growth strategies is atypically high at times when the value spread (the difference between the book to market ratio of a typical value stock and a typical growth stock) is wide.
Abstract: Authors decompose the cross-sectional variance of firms book-to-market ratios using both a long U.S. panel and a shorter international panel. In contrast to typical aggregate time-series results, transitory cross-sectional variation in expected 15-year stock returns causes only a relatively small fraction (20-25 percent) of the total cross-sectional variance. The remaining dispersion can be explained by expected 15-year profitability and persistence of valuation levels. Furthermore, this fraction appears stable across time and across types of stocks. They also showed that the expected return on value-minus-growth strategies is atypically high at times when the value spread (the difference between the book-to-market ratio of a typical value stock and a typical growth stock) is wide.
TL;DR: For example, this article showed that the aggregate dividend yield falls by 240 basis points and the growth rate of the capital stock increases by an average of 1.1 percentage points per year.
Abstract: Three things happen when emerging economies open their stock markets to foreign investors. First, the aggregate dividend yield falls by 240 basis points. Second, the growth rate of the capital stock increases by an average of 1.1 percentage points per year. Third, the growth rate of output per worker rises by 2.3 percentage points per year. Since the cost of capital falls, investment booms, and the growth rate of output per worker increases when countries liberalize the stock market, the increasingly popular view that capital account liberalization brings no real benefits seems untenable.
TL;DR: In this paper, the authors examined analysts' earnings per share (eps) forecasts around index inclusion and by comparing post-inclusion realized earnings to preinclusion forecasts, finding that companies newly added to the S&P 500 Index experience signi¢cant increases in earnings forecasts and signiµcant improvements in realized earnings.
Abstract: Stock price increases associated with addition to the S&P 500 Index have been interpreted as evidence that demand curves for stocks slope downward. A key premise underlying this interpretation is that Index inclusion provides no new information about companies’ future prospects. We examine this premise by analyzing analysts’earnings per share (eps) forecasts around Index inclusion and by comparing postinclusion realized earnings to preinclusion forecasts. Relative to benchmark companies, companies newly added to the Index experience signi¢cant increases in eps forecasts and signi¢cant improvements in realized earnings. These results indicate that S&P Index inclusion is not an information-free event. STUDIES THAT EXAMINE THE PRICES of common stocks when they become included in the Standard & Poor’s (S&P) 500 Index have appeared regularly in leading ¢nance journals since 1986. Fascination with the eiect of S&P Index inclusion on stock prices appears to stem from the possibility that inclusion in the Index is an ‘‘information-free’’eventFinformation free in the sense that S&P makes no claim that inclusion represents an endorsement of the newly included stock’s future prospects. 1 Indeed, S&P makes an a⁄rmative claim to the contrary: ‘‘Company
TL;DR: In this article, the impact of open market share repurchase announcements on both stock and bond prices is examined, and the authors find evidence consistent with both signaling and wealth redistribution, and they also find that bond ratings are twice as likely to be downgraded as upgraded after the announcement of the repurchase program.
Abstract: Prior research has documented positive abnormal stock returns around the announcements of repurchase programs; several explanations of these returns have been suggested, including signaling, free cash flow, and wealth redistributions. This study analyzes abnormal stock, bond, and firm returns around repurchase announcements to examine these hypotheses. We find evidence consistent with both signaling and wealth redistribution. The loss to bondholders is a function of the size of the repurchase, and the risk of the firm's debt. We also find that bond ratings are twice as likely to be downgraded as upgraded after the announcement of the repurchase program. IN THIS PAPER, WE EXAMINE the impact of open market share repurchase announcements on both stock and bond prices. Positive stock price reactions to the announcement of an open market repurchase program are well documented in the empirical finance literature.1 Several potential explanations of the positive stock returns have been posited in the literature, including signaling, free cash flow, and bondholder wealth expropriation. However, only the signaling and wealth transfer or wealth expropriation hypotheses have implications for the impact of a repurchase program on both stock and bond returns. The signaling hypothesis suggests that bond and stock returns should be positively correlated; the signal provides information regarding the firm as a whole and, consequently, bond and stock prices will move in the same direction depending on the signal.2 Alternatively, the wealth transfer hypothesis suggests that bond and stock value changes should be negatively correlated. Ignoring any dead-weight losses (transactions costs), a wealth transfer is a zero-sum game; any gains to shareholders must come at the expense of bondholders and vice versa.
TL;DR: This article examined the relationship between consumer confidence and investor sentiment through examination of the consumer confidence measures of the University of Michigan and the Conference Board and found that consumer confidence rises with high stock returns, but high consumer confidence is followed by low stock returns.
Abstract: Consumer confidence predicts economic activity, but does it also predict stock returns? Do stock returns affect consumer confidence? And what is the relationship between consumer confidence and investor sentiment? Answers to these questions are gained through examination of the consumer confidence measures of the University of Michigan and the Conference Board. Consumer confidence rises with high stock returns, but high consumer confidence is followed by low stock returns. Sentiments of individual investors about the stock market improve with consumer confidence about the economy, as if individuals were unaware that stock prices are a leading indicator of the economy. No relationship is found between changes in the sentiments of institutional investors and consumer confidence, however.
TL;DR: In this article, the authors investigated the relationship between stock prices and macroeconomic variables and found that the stock prices were positively associated with the stock price and the exchange rate was negatively associated with stock prices.
Abstract: Analyzes dynamic linkages between stock prices and four macroeconomic variables for the case of Malaysia using standard and well‐accepted methods of cointegration and vector autoregression. Empirical results suggest the presence of a long‐run relationship between these variables and the stock prices and substantial short‐run interactions among them. In particular, documents positive short‐run and long‐run relationships between the stock prices and two macroeconomic variables. The exchange rate, however, is negatively associated with the stock prices. For the money supply, documents immediate positive liquidity effects and negative long‐run effects of money supply expansion on the stock prices. Also notes the predictive role of the stock prices for the macroeconomic variables. However, there seems to be irregularity in the data when observations from the recent crisis are included. Finally, documents the disappearance of the immediate positive liquidity effects of the money supply shocks and unstable interactions between the stock prices and the exchange rate over time.
TL;DR: This paper examined the effect of mergers on bidding firms' stock prices and found evidence of merger momentum: bidder stock prices are more likely to increase when a merger is announced if recent mergers by other firms have been received well (a "hot" merger market) or if the overall stock market is doing better.
Abstract: This paper examines the effects of mergers on bidding firms' stock prices. We find evidence of merger momentum: bidder stock prices are more likely to increase when a merger is announced if recent mergers by other firms have been received well (a "hot" merger market) or if the overall stock market is doing better. However, there is long run reversal. Long-run bidder stock returns are lower for mergers announced when the either merger or stock markets were hot at the time of the merger than for those announced at other times.
TL;DR: In this paper, the authors studied the relationship between stock market developments and consumer confidence in eleven European countries over the years 1986-2001 and found that stock returns and changes in sentiment are positively correlated for nine countries, with Germany as the main exception.